Sole Proprietorship

Starting at Rs. 2999/- onwards + GST

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Sole Proprietorship

A sole proprietorship, also referred to as a sole trader or a proprietorship, is an unincorporated business that has just one owner who pays personal income tax on profits earned from the business.

Due to a lack of government regulation, a sole proprietorship is the easiest type of business to establish or take apart. As such, these types of businesses are very popular among sole owners of businesses, individual self-contractors, and consultants. Many sole proprietors do business under their own names because creating a separate business or trade name isn't necessary.



KEY POINTS

  • A sole proprietorship is an unincorporated business with only one owner who is responsible for paying personal income tax on profits.
  • Sole proprietorships are easy to establish and dismantle due to a lack of government involvement, making them popular with small business owners and contractors.
  • In order to keep up with the growth, many sole proprietorships are converted into limited liability partnerships (LLPs).

UNDERSTANDING SOLE PROPRIETORSHIP


A sole proprietorship is very different from companies or limited liability partnerships (LLPs), in that no separate legal entity is created. As a result, the business owner of a sole proprietorship is not exempt from liabilities incurred by the entity.

For example, the debts of the sole proprietorship are also the debts of the owner. However, the profits of the sole proprietorship are also the profits of the owner, as all profits flow directly to the business's owner.

The main benefits of the sole proprietorship are the pass-through tax advantage mentioned before, the ease of creation, and the low fees of creation and maintenance. The disadvantages of a sole proprietorship are the unlimited liability that goes beyond the business to the owner, and the difficulty in getting capital funding, specifically through established channels, such as issuing equity and obtaining bank loans or lines of credit.

Thus, entrepreneurs begin as an entity with unlimited liability. As the business grows, they often transition to a limited liability entity, such as an LLC or LLP, or a body corporate.


    ADVANTAGES


  • Easy to establish: Sole proprietorships are inexpensive and easy to form. As long as you are the owner and in charge of operations, there’s no need to formally register your business or notify federal or state offices. The only fees involved are those needed to register your business name, and to attain the appropriate licenses and permits.
  • Complete control: Sole proprietorships are automatically tied to you personally and this gives you complete control over the company and its trajectory. There is no need to make decisions based on the wants of shareholders or the requirements of legal partners. You can pivot your strategy as needed, and take your startup in any direction you wish to grow.
  • Less paperwork to get started: You won’t have to fill out a ton of paperwork with this business entity type. To explain, other business structures, such as limited liability corporations, require you to register with your State Government before you can do business. With sole proprietorships, on the other hand, you generally do not need to register with the state, instead, you become a business entity merely by virtue of doing business.
  • No limit to the number of people you can hire: There is no limit to the number of people you can employ as a sole proprietor, and this allows you to grow your reach and your team without taking the leap to formally incorporating your business.
  • Fewer business fees: When you're starting and first running a business, your budget can be tight. Therefore, another one of the crucial advantages of sole proprietorship is the ability to save on registration fees. In comparison with other businesses, sole proprietorships do not have the complex ongoing legal requirements, meaning you will be saving on a good amount of fees as well as the time.

DOCUMENTS REQUIRED


  • PAN, Aadhar Card and Photographs of the proprietor.
  • Utility bill of the office premises such as water bill or electricity bill.
  • Bank statement copy and other details such as account number and IFSC code of the proprietor.

Timelines

Generally, it takes 4 to 5 working days.


Fees

Starts from Rs. 2999/- onwards + GST, but the registration may vary from state to state.

FAQs


  • What does “sole proprietorship” means? 

    A sole proprietorship is the simplest and most common business structure. It is an unincorporated business owned and operated by a single person, with no distinction made between the business and the owner.

  • How do you pay taxes as a sole proprietor?

    You must record any business revenue or losses on your personal income tax return as a sole proprietor; the business is not taxed separately. (The IRS refers to this as "pass-through" taxes since profits from a business are taxed on your personal tax return).

  • Is sole proprietorship suitable for large scale business?

    Sole proprietorship form of business organization is not suitable for large-scale business. As the firm expands in size, so do the financial obligations, which cannot be met out of the sole proprietor's pocket. Their business and personal assets are at risk.

  • How long does a sole proprietorship last?

    A sole proprietorship's lifespan is unpredictable. The owner may lose interest, fall ill, retire, or pass away. Unless the owner makes plans for the business to continue functioning or sells it, it will cease to exist. The owner is responsible for any losses.

  • What are the disadvantages of a sole proprietorship?

    Here are some of the top disadvantages of sole proprietorship to consider:

    i.No liability protection.

    ii.It is harder to get financing and business credit.

    iii.It is harder to sell your business.

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